Stphane Ty, co-founder of McKay Brothers LLC, a company that operates a high-speed network for financial traders, has completed the process of obtaining permission to

Stěphane Tyč, co-founder of McKay Brothers LLC, a company that operates a high-speed network for financial traders, has completed the process of obtaining permission to erect a 350-foot-tall micro-wave tower in Chicago. Tyč and other company managers plan to place the tower on leased land. The location is across the street from a data center operated by the Chicago Mercantile Exchange (CME), one of the major U.S. exchanges for financial trading. Tyč’s land-leasing and tower-building arrangement follows on the heels of the erection of microwave towers in another location across the street from the CME’s data center by another company called World Class Wireless. The latter company is owned by Jump Trading LLC and Virtu Financial Inc., other financial-trading firms. Why are Tyč’s company and World Class Wireless placing micro-wave towers so close to CME’s data center? The answer is that doing so cuts a few milliseconds off the time required for an offer to buy or sell a financial asset to be processed by the CME’s communications system. Traders of the assets know that the theory. of efficient markets indicates that all relevant information is processed within a short interval after it becomes available. Nevertheless, they also know that a tiny fraction of a second can sometimes make a difference in profiting from the information available within that interval. This fact explains why they are competing to speed their access to the CME’s data centers.

CRITICAL THINKING QUESTIONS 

How might winning a bid to sell a financial asset a few microseconds faster than another firm enable a trader at a financial firm to earn a profit perhaps just a few minutes after buying the asset